The government of Singapore has released its 2014 budget, which includes S$500 million (US$400 million) to help drive economic changes at small and medium-size businesses (SMBs). This spending will focus on:

I concluded my March 2013 report on the role of software assets in business innovation by proposing that “The combination of software assets, strong domain expertise, analytics, and as-a-service delivery models will increasingly allow traditional service providers to reinvent the way they deliver business value to their clients.” I was glad to hear that IBM recently announced a deal with L’Oréal that directly supports this position. The announced engagement actually includes all these components:

The procurement domain expertise of IBM Global Business Services addresses business pain points. L’Oréal USA grew rapidly over the past few years via an aggressive acquisition strategy that caused indirect procurement processes to remain highly disparate. The company knew that there was a significant gap between negotiated savings and realized savings in its indirect procurement operations. IBM GBS consultants brought strong procurement expertise to work with L’Oréal’s existing sourcing team to transform existing processes. IBM Global Process Services (GPS) category experts are working with L’Oréal to develop and implement category sourcing strategies.

The IT services industry is being challenged on two opposite fronts. At one end, IT organizations need efficient, reliable operations; at the other, business stakeholders increasingly demand new, innovative systems of engagement that enable better customer and partner interactions.

My colleagues Andy Bartels and Craig Le Clair recently published thought provoking reports on an emerging class of software — smart process apps — that enable systems of engagement. In his report, Craig explains that “Smart process apps will package enterprise social platforms, mobility, and dynamic case management (DCM) to serve goals of innovation, collaboration, and workforce productivity.” In other words, smart process apps play a critical role in filling gaping process holes between traditional systems of records and systems of engagement.

18 months ago, my first blog post at Forrester discussed industrialization trends in the IT services industry globally. I suggested then that IT services providers would have to focus their industrialization efforts on shared resources, self-service and automation capabilities.

On the automation front, most efforts till date have been incremental in nature – mostly focused on removing redundant and mundane tasks via process redesign and/or tools implementations. The recently announced Infosys partnership with IPsoft is taking these automation efforts to a whole new level. Infosys will leverage IPsoft’s autonomic based automation capabilities as part of its effort to improve the performance of its infrastructure services delivery capabilities.

Why is this partnership important?

From an operations perspective, this technology is expected to improve the competitiveness of Infosys’ infrastructure services offering. In a nutshell, the scripts used in traditional tools to automate a particular task are replaced by self-learning, self-optimizing software agents, which yield much faster time to resolve. According to IPsoft, such technology can automate at least 60% of level 0 and level 1 issues in a support environment by automating time-consuming labor such as diagnostics.

As you’re all well aware by now, a perfect storm of technology innovations — including cloud, analytics, mobile, and social­ ­— is fundamentally disrupting the way your company engages with its customers (as well as employees and partners). For service providers in particular, the main challenge is understanding how to best leverage these technology innovations to remain relevant and ultimately generate more business value. So it’s exciting to see a service provider like Cisco Services come up with new offerings that respond to this challenge in innovative ways.

I met with Cisco Services Asia Pacific Japan and China (APJC) executives last week in Seoul to discuss their strategy in Asia. I wanted to highlight a few takeaways that I believe will be important for sourcing professionals in Asia and beyond:

Cisco Services is a key enabler of Cisco’s overall transformation. Cisco Services used to be a captive consulting organization providing support and technology services for a product company. In a recent analyst call, John Chambers identified Cisco Services as one of the main levers that will help Cisco transition from a transaction-oriented to an annuity-based business model and help the company become the largest IT company globally. The company’s aim is for Cisco Services to represent 24-26% of total revenues in the next 3-5 years. These goals are extremely audacious; achieving them will require huge efforts from Cisco, including some targeted acquisitions in the services space.

I recently reviewed a portfolio of about 600 software artifacts from 16 large IT service providers. This daunting exercise complements a research stream I have been working on since the beginning of the year on the future of the IT services industry. While I believe the move to software asset (SA)-based IT services will drive maturation of the services industry and help IT service providers remain relevant to their clients, the analysis of this SA inventory raises a few significant challenges:

Most software assets face scalability issues. Traditional sales and marketing organizations within IT service providers fail to sufficiently scale up the number of clients for their SA-based offerings. Case in point: 68% of the software assets analyzed in this inventory have fewer than five clients. This low number raises concerns on the financial viability of these offerings for service providers.

Service providers will face a SA sprawl over the next couple of years. On average, service providers currently have about 20 SAs in their SA portfolio. The analysis shows that this number is growing exponentially (see below). The number of SAs created has increased by an average of 26% each year since 2009 and is accelerating. More assets were created in the first six months of 2012 than in any previous entire year; SA-related investments are following a similar trajectory.

During a recent global analyst event in Paris, Capgemini presented its strategy to a panel of market and financial analysts. It hinges on two main objectives: improving the resilience of the organization in an uncertain economic environment — especially in Europe — and finding new levers for margin improvements.

From an operations point of view, Capgemini intends to continue leveraging the usual suspects: industrialization, cost cutting, and accelerating the development of its offshore talent pool. It also aiming to optimize its human resource pool via a pyramid management program aimed at, among other things, allocating the right experience level to the right type of work.

More interestingly, the company showcased some of the global offerings it has put together or refined over the past 12 months. Capgemini’s strategic intent is to develop offerings addressing three major client-relevant themes – customer experience, operational processes, and new business models. The offerings will be enabled by a combination of cloud, mobile, analytics, and social technologies. Among the set of offerings managed globally, I found the following of particular interest due to their emerging nature and Capgemini’s interesting approach to developing them:

I recently finalized a report* on software asset (SA) based IT services, this time looking at vendors’ best practices in terms of governance, organization, skills, tools, and processes. Needless to say, the move to software asset-based services will have a huge impact on the traditional operating models of IT services firms.

This will induce a formidable cultural change within the IT services vendor’s organization, somewhat similar to the change Western IT service providers had to undergo 10 years ago when they finally embraced offshore delivery models.

I see a few critical steps that IT services firms need to take in order to facilitate this shift towards software asset-based business models:

Build a client-relevant SA strategy. Building an SA base offering is not (only) about doing an inventory of the existing intellectual property (IP) that you have on employee hard drives and team servers. More importantly, it’s about making sense of this IP and building strategic offerings that are relevant to your clients by centering them aounrd your clients’ most critical business challenges.

Next month, I will be relocating to Singapore after two years in India. These two years have been an amazing learning experience for me, both from a personal and professional point of view. A very intense experience too! Of the few Hindi words I learned during my stint in India, there is one that I am particularly fond of: “jugaad,” which can be translated as “making things work.” This is one way to summarize what India is all about — and why India works as an economy, in spite of the gods and despite all of the challenges that India currently faces as a society.

This concept has taken on a lot more importance on the global scene in recent years from an innovation management point of view. A former Forrester colleague has recently coauthored a book about the concept and how it could “reignite American ingenuity.” The economic and ecological crises that we have been through over the past few years call for new ways of approaching economic development and growth. And the “jugaad” concept could bring interesting solutions to our modern societies.